Mexican Government Moves to Regulate Carlos Slim's Media Empire

Mexico City – Mexican President Enrique Peña Nieto made moves Monday to revamp the weak regulation system that has permitted the world's richest man and its largest Spanish-language media empire to exert near-total control of Mexico's lucrative telephone and television markets.

The reforms would give the Mexican government tools to take on multibillionaire telecommunication tycoon Carlos Slim and Televisa CEO Emilio Azcarraga, independent observers said. The two rivals’ holds on their respective markets have been widely seen as emblems of regulatory dysfunction in a country aspiring to join the ranks of the world's economic superpowers.

Their companies' pervasive influence has repelled a series of attempts to break their dominance over the years. The tycoons' power could thwart fresh efforts despite Peña Nieto's push to put teeth into Mexico's deeply flawed regulatory system, experts said.

SUMMARY

Peña Nieto has spent his first 100 days reasserting the power of Mexico's once-imperial presidency, most dramatically jailing the head of the teacher's union in the midst of a fight over reforms to the country's sclerotic education system.

The reforms would raise or eliminate limits on foreign investment, create two new national television channels and form a new independent regulatory commission along the lines of the U.S. Federal Communications Commission, with the power to unilaterally punish non-competitive practices, including withdrawing corporations' licenses. A second independent commission would be able to order firms to sell off assets in order to reduce their market dominance.

The existing commissions that oversee competition and telecommunications have no independent ability to alter permits, order divestment or issue fines. Those powers sit with a Cabinet secretary, a position that in the past frequently has been accused of bowing to telecommunications firms.

The reforms would require TV networks to provide their programming free to most cable operators, and require cable operators to carry all broadcast channels, measures seen as essential for opening television markets to competition. The changes would also block telecommunications and broadcasting companies from indefinitely freezing regulatory decisions simply by obtaining a private injunction, a peculiarity of Mexican law that has thwarted dozens of attempts to regulate media and communications firms.

It would allow foreign firms now banned from radio and broadcast TV to have as much as a 49 percent stake, and would give blanket permission for total foreign ownership of all telecommunications and satellite TV services, currently subject to a variety of limitations and permit requirements. That change could allow in powerful international players better equipped to challenge Slim and Televisa than the smaller Mexican competitors that have struggled against them.

The reform's purpose is "to accelerate competition in telecommunications and broadcasting ...freeing the potential of the sector, and doing it in the fastest time possible," Peña Nieto said before signing the proposal along with the leaders of the country's major parties.

The changes to the constitution and federal telecommunications laws must now be approved by congress and half of Mexico's 32 state legislatures.

"It seems, at the start at least, like they're taking up substantial issues in order to make structural changes in the way telecommunications and broadcasting work in this country," said Aleida Calleja, president of the Mexican Association for the Right to Information, a group that has campaigned for stricter regulation and increased diversity in the telecoms and television markets. "It seems to me like it's an extremely valuable start."

Televisa's political influence has also become one of the rallying cries of the Mexican left, which often accuses the conglomerate of trading positive coverage of politicians for favorable regulatory treatment. Pre-election protests against Peña Nieto focused on his ties to Televisa, a historic ally of his Institutional Revolutionary Party, which ruled Mexico for seven decades before losing the presidency in 2000.

Peña Nieto has spent his first 100 days reasserting the power of Mexico's once-imperial presidency, most dramatically jailing the head of the teacher's union in the midst of a fight over reforms to the country's sclerotic education system.

Backers of the new reform and some independent experts cast it as a similar blow against entrenched special interests, pledging that it would open Mexico's multi-billion dollar a year telecommunications business to true competition that would drive down some of the world's highest prices for telephone service and diversify a television market dominated by a single company.

"The rules of the game will be fairer, above all for the small and medium companies that have been tied down in their efforts to develop and expand their businesses by the monopolistic practices of Carlos Slim and the television company, particularly Televisa," said Gabriel Sosa Plata, a researcher and telecommunications expert at the Metropolitan Autonomous University in Mexico City.

Slim's Telmex, the privatized former national phone company, controls 80 percent of Mexican landlines and 70 percent of the mobile-phone market. Azcarraga's Televisa has 70 percent of the broadcast TV market and more than 45 percent of cable television.

Televisa said in a written statement that, "We welcome the proposed constitutional reform, which will promote competition in broadcasting and telecommunications."

Slim's America Movil also said it welcomed the proposal, describing the lifting of limits on foreign capital as a catalyst for needed telecommunications investment.

Slim's companies have maintained profit margins nearly double the average in the 34-nation Organization for Economic Cooperation and Development, while Mexico has the group's lowest rate of telecommunications investment per capita and sat at or near the bottom in terms of number of fixed and mobile phone lines per capita, according to a scathing OECD report last year.

The report, much of which was fiercely disputed by Slim, found that what it called the dysfunction in telecommunications cost the Mexican economy more than $30 billion a year.

The new regulator's ability to potentially force companies to sell assets in order to reduce their market power and avoid withdrawal of their licenses is "a pretty powerful tool and certainly unlike anything Mexico's ever seen before," said Christopher King, a telecommunications analyst with investment banking firm Stifel Nicolaus.

He described the reform as "bad news" for both American Movil and Televisa, but cautioned that its true impact would only be seen if and when the reforms passes into law regulators begin to act.

"In terms of how bad the news ultimately is, the devil will be in the details," he said.

Stock in Televisa was down slightly by mid-afternoon while Slim's America Movil dropped more than 2 percent.